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Thursday, 7 March 2013

NBN: Turnbull's "Same, Same" Used Car pitch

This was MT doing a very good impression of a used car salesman:"this clapped-out 1980 Gemini is exactly the same as that 'expensive' new Mazda or Toyota".

Only we all know that a second-hand cars are much, much cheaper than new cars for a good reason.Yes, you suffer a 20-30% loss of value when you drive a new car off the lot, unless you buy a Subaru (and others) which 'retain their resale value', but you buy into those economics.

My relatives couldn't believe it in 1991 when I told then I'd leased a new car and had it serviced at the dealership (the highest priced servicing possible) and that just in the fist year that car was 30% cheaper to run, but was safer, more comfortable, more featured and faster than the 1975 P504 I'd traded in. (Actually, the dealer gave me $1000 to keep the car and get rid of it myself.)

Turnbull's plan is classic "lipstick on a pig": you can put filler in the dents and paper-over the rust, apply a new paint job and disguise engine and mechanical faults so a clapped-out old car so it sparkles "just like a new one", but it's a complete waste of money. In six months the buyer will be beating down your door, "mad as hell" they were duped. But of course, they'll be shown the fine-print disclaimers, the consumer law says "no warranty on older cars" and that they can't be responsible for problems that weren't there when they sold it, or really, faults that you can't prove in a court of law were there when you bought it.

The sucker who buys the car with the new paint job and wound-back-speedo and believes the line of "one-owner, only driven to Church by a little old-lady" will also buy MT's sales pitch.

MT said his FTTN solution:

would be one quarter the cost ($15B "though we haven't quantified the precise amount yet" vs $50B and "a lot more than that if they are allowed to complete it"),

could be rolled out much cheaper and faster,

that "the network could be upgraded incrementally",

that a new technology, a software upgrade, "vectoring" could "double speeds from 50Mbps to 100Mbps" and

if any subscribers ever wanted to upgrade to fibre, then they could just have a fibre run from the node to their house.

MT also says the government is committed to paying around "$50B"to Telstra over the whole project, but that is a Net Present Value (NPV) of "$11B". This is facile and disingenuous in the extreme. I find this a most deceptive statement from someone who knows much, much better than this. As an ex-merchant banker and high-end investor MT knows NPV is used exactly so that "Apples and Apples" comparisons can be made. Nobody uses raw dollar amounts for anything other than projected cash-flow.

The interviewer quizzed him on the German FTTN rollout with nodes 400 meters from premises. MT admitted there was a distance-speed relationship but didn't commit to a distance, though a casual listener may've thought that the Coalition plan was for a "400m rule".

Turnbull promises:

all Australians will get access to "very fast broadband",

it will be delivered sooner than the full-fibre NBN, and

it will be cheaper, in the sense that it will cost taxpayers less,

and be more affordably for consumers.

By using a mix of technologies, including "Fibre to the Node/Cabinet" (implied as a new network) reusing existing services where possible,

saving the massive civil construction costs, the bulk of which is labor costs, of taking fibre into every home (not premise).

"some wireless and some satellite".

Broadband upgrade will be prioritised in the areas of greatest need, vs overbuilding areas which have very good broadband now.

If there is no public out-cry for faster broadband speeds, why is delivering a faster network sooner an issue or attractive? This is an essential contradiction in his statements.

MT conflates NBN with a domestic-only network, this is exactly wrong. The chief economic driver for the NBN is business productivity and increasing global reach and competitiveness.

All this was known in late 2008 when the Rudd/Conroy independent Expert Group, not the government, evaluated the "Fibre to the Node" tender responses. None were economically viable. Technology and raw demand has evolved in the last 4 years: what was a bad idea then is now a worse idea and getting worse every day.

This is NOT theoretical, we have a perfect large-scale experiment in the economics and desirability of both FTTN and HFC broadband: TransACT.

They covered 50,000 houses in the ACT and provided cheaper phone services (free on-net local calls!) but failed in the market place against ADSL direct-to-exchange and 3G/4G wireless.

Then they purchased regional HFC networks, and similarly, didn't make them pay.

iiNet acquired them for 25% of their initial asset value: probably a realistic valuation.

Turnbull knows all this. He's just a Used Car salesman trying to pull the wool over the eyes of naive buyers saying "you don't want an expensive new car when this old one is just as shiny!" yeah, right.